Loan forbearance and UNFAIR Suspended Payments?

[Angie Williams]

My question is when someone goes into a loan forbearance, why does the loan company put a suspension on payments? My neighbor at one of my properties in PA missed 3 mortgage payments. Her mortgage company gave her a forbearance option, she has been in the application process for 7 months and is not able to pay any of her monthly payments. Every month they send her a letter of completion of her application and to await a decision. Then a week or so later she will receives another letter stating more information needed for decision. Her husband and her are nearly $10,000 more in mortgage debt due to the suspended payments. I believe she should consult with a lawyer at some point. It's almost as if the loan company is buying themselves time so she goes deeper into a hole of debt to the point her and her husband won't be able to catch up in payments. I saw the letters that were sent to her and they are all redundant and asking for documents she has sent already. I have never seen this happen with loan forgiveness, then again I have never been in Forclosed and know very little of the forgiveness process. Believe me as an investor I would love to swoop in and buy the property for peanuts, but they have been great neighbors of mine and my tenants for years. They are an elderly couple I told them I would ask around to see if I can figure out if this is standard procedure. Any advice would be helpful. Thanks!

[Dion DePaoli]

@Wayne Brooks pinged me.  I can add some clarity on this.

What is being described sounds common.  The borrowers fell on hard times and inquired about relief from the servicer.  The servicer agreed to forebear the loan and to consider the borrowers for a modification.  

So two separate things are happening.  The forbearance and the modification request.  

The forbearance would mean the payments being sent in on the loan are less than what is due.  So these payments are going into suspense in an unapplied account until a decision is made on how to apply the payments.  The payments will stay in an unapplied account until the payments are applied to principal, interest and escrow.  How those payments are applied will be up to the servicer and loan investor to determine with the general idea to capitalize the least amount of the loan as possible.  From the post it is not clear what the term of the forbearance is/was.  In the event the borrowers have misunderstood the term limit of forbearance then late payments might be being applied to the suspense/unapplied since the payment they are making, believing they are being forbear, are insufficient for the account.  (Not full PI&TI)  Insufficient payments made on an account also go into a unapplied or suspense account until applied to interest, principal and escrow.  I mention that because typically forbearance is not indefinite.  It starts and ends regardless of the borrower's inquiry into additional account relief through modification or their success or lack thereof with delivering the hardship packet back.

While the loan is being forebear the borrowers were delivered a hardship packet which needs to be filled out and compiled and turned in.  The point of this exercise is to determine what level of relief is needed on the loan for the borrowers to maintain the account.  As the borrower sends in the material requested additional hardship packet letters will likely go out which do not live-update the items missing or needed, so they can look like the entire list in a repeating fashion.  That may seem absurd but in large servicer operations it is not practical for the mailing lists to be updated with items sent and not received.  The take away from the letter is something on the list has not been received or is not proper.  The borrower's should make contact with the servicer and inquire about what item(s) have not been received or turned in incorrectly.  They should then take steps to correct any defective items turned in or turn in any missing items requested.

This too is not uncommon.  Borrowers think they sent in "everything" but some of the items sent are not proper or can not satisfy the item requested.  Examples could be bank statements missing pages, such as the back page was not copied even though no material bank information exists on it only disclaimers and fine print.  Another example is paystubs which do not properly show year to date earnings or tax deductions.  The final example for the sake of this post could be failing to send in an award letter for SSI or other government entitlement benefits.  There are numerous items which can be messed up or improperly sent in.  They key for them is to call and ask to get a detailed response and fix it.  

Only AFTER all items are properly sent and received must a mortgagee respond to the request for relief.  So no actual payment plan need be mentioned until that point.  The mortgagee can issue the hardship packet requirements and give the borrower a grace period to deliver said items and upon the grace period expiring along with the failed delivery of items they can deny relief.  

These matters can be confusing and aggravating for borrowers.  It doesn't help when the public banter responds with ideas of incentives for a mortgagee to seize a property.  In the state of Pennsylvania foreclosure is judicial and can favor the borrower.  A mortgagee can never simply seize a property.  The process of foreclosure is a formal one.  A mortgagee is only due the amounts under the note and nothing more.  Payments sent in by a borrower held in suspense or unapplied would have to be applied to the account prior to any approval of amounts due from court ordering the sale.

Again, the steps toward remedy here are:  (1) Contact loss mitigation person and inquire about missing or inadequate items sent; (2) Send in those items (3) Await relief response

Once all items are sent in properly a mortgagee must respond with a plan or denial of relief within 30 days.  Again, as I mentioned only after all requested items are received and proper.  If the borrower wants to track that moment and count off the days and they feel the relief response is being withheld unreasonably then they can contract the Consumer Financial Protection Bureau ("CFPB") for free.  

The CFPB is the consumer watchdog organization and they will open an investigation with the servicer and a decision will come shortly after that.  The CFPB has authority over mortgage servicing companies and their practices and can audit files upon request.  The borrowers can certainly seek out an attorney if they so wish but like I said the CFPB is free.  If the borrowers feel they have been damaged by the mortgagee or mortgage servicer the pursuit of recovering those damages would require an attorney.  While the latter does happen from time to time, it is not the norm.

Hope that helps.